Small Business and General Division R. Langevin (613) 957-2138
SEP 20 1988
Dear Sirs:
This is in reply to your letter dated July 26, 1988, concerning the amendments to subsection 110.6(1) pursuant to Bill C-139 as it applies to the definition of a qualified small business corporation share.
You have described a situation in which a shareholder might advance substantial sums of cash to a holding company which in turn advances the same amount to an operating company that uses the cash in its active business. The cash would be held by the holding company for an unspecified period and would not be employed in shares or debt of the connected operating company.
You request that we confirm that, in such circumstances, the Department would consider the cash to be invested in the connected operating company throughout the 24 month holding period required by the above amendments set out in Bill C-139 in this regard.
We cannot confirm that the cash would be considered to be invested in or utilized by the operating company in the circumstances described inasmuch as the cash is not in fact invested in shares or debt of the connected operating company.
We would add that it would be a question of fact to be resolved on the particular merits of each case, whether or not the active business asset test added by Bill C-139, as it applies to the definition of a qualified small business corporation share, is met.
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch